Fixer Upper is one of my favorite shows. The chemistry between Chip and Joanna Gaines is fun to watch and what they do to a home is nothing short of a miracle. Their mantra is to buy the worst home in the best neighborhood. If you’ve watched the show, they’ve purchased some horrible homes. At times, I wonder what they were thinking because the homes were in such despair. However, this is one of the key ingredients to their successful franchise. By the end of the show their vision, toil and magic come to life in the form a completely transformed home.
Magnolia Market is in Waco. Waco is a sleepy town on the Brazos River situated half way between Austin and Dallas and the home of the Baylor Bears. Magnolia Market is a landmark in Waco sitting in the shadows of its two big silos. The market is a destination for their legion of followers who watch their show. My wife and I have visited the market several times, along with a few thousand other guests, and have not been disappointed.
The homes they buy are in such bad shape you’d think they’d tear them down and start over. Because the homes are in a state of hopelessness, it allows the buyer to purchase it at a great price. Several homes highlighted on the show have been purchased well below asking price. To get the best price on any item, it must be purchased when pessimism is high. The higher the pessimism, the lower the price. If everybody wanted to buy the best home in the finest neighborhood, the price would go through the roof.
After the home is purchased Chip goes to work on demo day. It’s not uncommon for Chip to find more damage to the home once he starts knocking out walls and tearing up floors. The issues he finds are sometimes major like foundation or plumbing issues. Once Chip is finished with demo day, Joanna decorates the home and together they deliver an amazing home and experience for the new owner.
The stock market has its own version of Fixer Upper. All stocks will move in and out of favor at times. The best time to buy a stock is when no one wants to own it and it’s out of favor. It’s during the dark days when an investor can pick up a bargain.
If you need proof, look no further than the four horsemen of the financial sector: Bank of America, Wells Fargo, JP Morgan and Citigroup. These four banks traded to historic lows during the Great Recession before rebounding. Since the low of the recession, these four stocks appreciated, as a group, 625%! I’m not suggesting the stocks listed here will have the same rebound, however, to find a steal look for the worst stock in the best market.
Here are few retail stocks that have been demolished lately. These stocks will need more than shiplap, paint and wooden beams for them to recover. These companies are experiencing a high level of pain and need a little TLC. If these stocks can get their house in order, then maybe they’ll find some love among investors.
· Williams-Sonoma (WSM). WSM is trading around $50 per share after hitting an all-time high of $89.38. WSM is the owner of Pottery Barn. WSM has a current dividend yield of 3.01%.
· Nordstrom (JWN). JWN is selling for $44 and its all-time high is $83.16. JWN has a current dividend yield of 3.34%.
· L Brands (LB). LB is priced at $50.75 and has fallen from its high of $101.11. LB currently yields 4.80%. LB is known for their main product line of Victoria’s Secret.
· DSW Inc. DSW is a retailer of shoes. The high on this company was $47.55 and its currently trading for $20.20. DSW currently yields 3.88%.
· Buckle (BKE). BKE is trading for $18.85 down from its all-time high of $57.68. BKE currently yields 5.3%.
When buying a fixer upper patience, vision and faith are needed. So, too, when you buy a stock that is currently down and out.
And the rain fell, and the floods came, and the winds blew and beat on that house, but it did not fall, because it had been founded on the rock. ~ Matthew 7:25
Bill Parrott is the President and CEO of Parrott Wealth Management. For more information on financial planning and investment management, please visit www.parrottwealth.com.
March 19, 2017
Note: Prices and yields are for 3/17/2017 only and are subject to change without notice. Your returns may be more or less than those highlighted. As always, do your homework before making any investment. PWM owns shares in WSM and JWN.